Audit report will be sliced in two

The traditional audit report is to be split in two if proposals from the UK’s
audit standard setter are adopted.

One part of the report will address the auditor’s opinion on the financial
statements of client companies while the second will deal with other legal and
regulatory reporting requirements, such as whether the director’s report is
consistent with the financial statements.

The proposals come from the Auditing Practices Board, part of the Financial
Reporting Council, which has issued an exposure draft for the UK and Ireland
version of ISA700: ‘The independent auditor’s report on a complete set of
general purpose financial standards.’

The standard, originally designed by the International Federation of
Accountants, redefines the form and the contents of the traditional audit
report, and states that from the end of next year audit reports will be split
into two parts.

A source within the APB said the new standard would ‘not be a huge change in
the processes an auditor goes through’, but a only slight change in the
presentation format.

ISA700 also offers clarification of the responsibilities of the auditor and
management, while other presentational issues include combining the ‘basis of
opinion’ section with the ‘auditor’s responsibilities’ section.

However, the standard, along with two other new and revised ISAs, could come
under fire from investors, who have targeted ISAs as damaging to audit quality
and reducing auditor risk.

They are also furious about the lack of consultation that has taken place
during the standard-setting process.

Iain Richards, head of governance at Morley, argued that the decision to
adopt ISAs has been made without seeking views and, in fact, when the first
public consultation around ISAs was released, the APB stated that the purpose of
the consultation was ‘not to seek views on this approach’.

He went on to argue that this approach was ‘not consistent with government
policy’.

Both the APB and IFAC have defended their consultation processes from such
accusations in the past.